Trade Setup: Holding 100-DMA level is crucial for Nifty50 to avoid further weakness

In a disappointing session on Friday, Nifty50 did not extend its up move despite trading in a range in the first half of the day. Nifty50 opened positive on Friday and got stronger on the expected lines. However, it soon marked the high point in the early minutes of the trade. Nifty50 pared its initial gains in the first hour of the session as the headline index slipped into the negative territory. The weakness intensified for the rest of the day and the index went on to end with a cut of 204.95 points (-1.18 per cent).

From a technical perspective, Nifty50 has once again revisited the 100-DMA which presently stands at 17168. Not only for Monday’s session but for the rest of the week, Nifty50 has to keep its head above the 100-DMA on a closing basis. Any slip below this level will invite incremental weakness for the markets. On the higher side, looking in tandem with the higher time frame charts, the zone of 17260-17400 marks as stiff resistance for the benchmark index. Volatility increased a bit as India VIX climbed 2.03 per cent to 18.4550.

Monday may see a jittery start to the day. The price behavior of Nifty50 against the levels of 100-DMA will be crucial to watch. The levels of 17260 and 17330 will act as potential resistance levels for the markets. The supports come in at 17150 and 17030 levels.

The Relative Strength Index (RSI) on the daily chart is at 40.31; it is neutral and does not show any divergence against the price. The daily MACD is bearish and below the signal line. However, the narrowing of the histogram suggests that the downside momentum may be decelerating.

The pattern analysis shows that the price measurement targets that arose following the bearish Head & Shoulders formation has been closely achieved. Nifty50 has managed to climb above the 100-DMA after a violation; however, since it has visited that levels again, defending them becomes more crucial and important.
All in all, Nifty50 may be in the process of finding a base for itself; however, it has not completed that process. It is recommended to continue avoiding large exposures. The stock-specific fabric of the markets will continue to persist for some more time. It would be prudent to approach the markets with exposures at modest levels while adopting a highly selective and cautious view of the markets.

(Milan Vaishnav, CMT, MSTA, is a Consulting Technical Analyst and founder of EquityResearch.asia and ChartWizard.ae (ChartWizard, FZE) and is based at Vadodara. He can be reached at milan.vaishnav@equityresearch.asia)